“There is one and only one social responsibility of business-to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”- Milton Friedman
A landmark judgement pronounced in 1919 in case of Dodge Vs. Ford Motor Company in Supreme Court of Michigan, USA, held that the primary objective of a business is to make profits, and that any business is responsible to its shareholders and not to community as a whole and not to its employees.
In various cases this judgment was considered as a landmark judgement. The idea that business owners should also seek to perform social tasks was regarded as completely erroneous even though the individual industrialists and entrepreneurs in their own right to made significant financial contribution to their society.
In view of Noble Laureate Milton Friedman- that the responsibility of a business is to increase profits and that engaging in activities which discharge the Corporate Social Responsibilty (CSR) of a business is an instance of agency conflict or a conflict between managers and the shareholders. In his view CSR activities undertaken by managers for their personal needs and at the expense of the shareholders, and he even went to say that in a free society, CSR reflects an inappropriate use of corporate funds.
The theory of Milton Friedman was supported by various court judgments till 1980. In early 1980 the business community and stakeholders of a business have moved from Milton Friedman model and adopted model developed by “ Peston and Caroll” , which was embodied in a structure they called “ Corporate Social Performance(CSP)”, framework which combines the principles and philosophy of societal needs with the economic responsibility of a business.
Milton Friedman-again brought concept of “Stakeholder” in 1984, which he defined as “any group or individual who can affect or is affected by the achievements of an organisation’s objectives”.
The Stakeholders theory asserts that these stakeholders both affect and affected by the actions of the firm.
The Stakeholder concept has facilitated the inclusion of the sustainability concepts in the core business practices of the Company.
The concept of sustainability and stakeholder inclusion have been motivated by the belief that adopting sustainability practices in the long run would lead to the improved financial performance of the firm, increased competitive advantage, profit maximisation and the long -term success of the firm.
Now we have gone through a lot of changes in business practices. Today’s businesses are treated as a part of society and their responsibility has been fixed. Since businesses are using resources of a country such as services provides by various person, security, minerals, various goods and as well as human to earn profit. The role of businesses has been fixed so that they have to return some portion of their profit to the welfare of the society. The principal activity of business has been changing, though its principal activity is earning profits for its shareholders, but development of social environment in which it is doing business is also duty of an organisation. A business organisation has duty to take care of its stakeholders, which includes its shareholders, vendors, suppliers, employees, government and of course the environment or society in which it is running its business. Thus, Corporate Social Responsibility of a business has been fixed.
LET’S CONSIDER “SUSTAINABILITY REPORTING”
Brundtl and Commission (1987) defines as: that sustainable development is “Development that meets the needs of the present without compromising the ability of future generations to meet their own meets.”
We can say that “Sustainability” is based on a simple principle: Everything that we need for our survival and well-being depends, either directly or indirectly, on our natural environment. To pursue sustainability is to create and maintain the conditions under which humans and nature can exist in productive harmony to support present and future generations.
A most important problem we are facing during this industrial age if change in environment and change in climate. The temperature of our earth is continuously increasing, which causing depletion in OZONE LAYER. The Ozone Layer, which protects us from Ultraviolet rays of SUN is depleting continuously, due to industrial evolution and cutting of tress, which are used a raw material and claiming areas of various wildlife centuries.
“TRIPLE BOTTOM LINE”, a term coined by Elkington (1997), implies that corporate should focus” not just on the economic value they add, but also on the environmental and social value they add-and destroy”.
The idea inherent in “TRIPLE BOTTOM LINE”, is rooted in the concept and goal of sustainable development, which was defined by Brundtl and Commission (1987).
Mr. Deegan( 1999) indicated for an organisation or community to be sustainable ( a long -run perspective) , it must be financially secured( as evidenced through such measures as profitability) , it must minimise ( or ideally eliminate), it negative environmental impact, and it must act in conformity with society expectations”, that is, it is inadequate to measure and present only economic performance , which is the focus of the intellectual capital(IC) research. In order to sustain themselves in long run, organisations must, therefore, strive to achieve better performance across the three dimensions of the “TRIPLE BOTTOM LINE.
Mr. Michael Porter and Mr. Mark Kramer, professors of Harvard states “Business and Society have been pitted against each other for too long and this is because companies have excluded environmental and societal considerations from their economic thinking.”
The concept of shared value as outlined by them focuses on relationship between economic and societal progress with a key focus to increase total value proposition of a company and the mechanism of equitable sharing of such value amongst stakeholders.
This new dimension to the role of the Corporate Sector, wherein organisations are not only managing scare resources, but are also responsible for the impact of their operations on society and the environment, requires a strategic commitment to mitigation of hardships/challenges, renewal of resources and promotion of responsible consumption.
Therefore “Sustainability”, encompasses three dimensions of Environment, Social Criteria and Governance, known as “ESG” parameters. This ensures long term sustenance and continuance of responsible business.
SUSTAINIBILITY REPORTING, is therefore a vital step for managing changes towards a sustainable global economy- one that combines long-term profitability with social justice and environmental care.
The development of Sustainability Reporting movements can be divided into three parts, as follows;
1. First Phase, up until end of 1970, the spotlight was on government, this phase also saw the creation of first large International NGOs. The main focus is on gathering data and verifying the limits of the then current general development model. During civil society movements during 1960-70, we came through evaluation of various world organisations such as Amnesty International, World Wildlife Fund, Friends of Earth, Greenpeace and various national and local bodies, which championed social and civil welfare in the country as well as in the world level.
2. Second Phase starts during 1980-90, the link between environmental and social issues was established and the spotlight shifted to the business world. The demand raised for “Sustainable Development Model”, which would take account economic, environmental and social aspects. This movement brought transparency and ethics into discussion, defended the need for local, regional, and international alliances of diverse actors to address problems, revealed the power of consumers to pressure for change and initiated the discussion on new model of developments- that is model of Sustainable Development- in which economic, environmental and social issues are taken into account for discussion and improvements.
3. Third Phase started after 2000, in this year Global Reporting Initiative (GRI) was founded as a project under Ceres, a Boston (US) based National Network of Investors, environmental organisations and other public interest groups working with companies and the investors to address sustainability challenges such as Global Climate Change. In 2002 the GRI became an Independent International NGO and its secretariat has been established in Amsterdam (Netherland).
In third phase it has seen the regional, national and international agenda change yet again. There is now a clear understanding that the problems are widespread and global, and business of all sizes and types need to be involved in their solution.
“Governance’- the process through which decision is taken-has now on discussion within communities.
“Think Globally/ act locally” seems to be the guiding sentiments of the civil society movement after 2000, which has been driven by forces such as terrorism, war, extreme poverty, carbon emission and climate change, as well may other human rights issue.
The key developments brought reporting on ESG parameters to prominence in India was launched of Standard & Poor’s(S&P) ESG India Index in 2008. This is first index of companies in India that measures and ranks 50 National Stock Exchanges (NSE) listed companies on their ESG Performance. The initiative was sponsored by the International Finance Corporation and executed by Credit Rating Information Services of India Limited (CIBIL) and KLD Research & Analytics. 50 of 500 companies listed on NSE that meets ESG criteria are part of this Index. The recent launched “BSE-GREENEX” measuring the performance of companies in terms of carbon emission by Bombay Stock Exchange, supported by GIZ is expected to assist investors in their decision making based on carbon efficiency of stocks according to purely quantitative performance-based criteria.
There is legal framework of the Indian Government, which is promoting greater transparent disclosures of ESG parameters and new laws and regulations are being drafted to make such reporting mandatory for business.
CONCLUSION: A business dose not survive in isolation, it requires raw material for production, a market for sale of its products and prospective customers. Initial concept is a business shall be established only for profits and adding value to its shareholders. Even this concept has been approved by various courts before 1960. Slowly the concept has been changed in various phases. The emergence of various NGOs, World Trade Organisation, Amnesty Internationals, Greenpeace, etc., empowers the concept of environmental and social welfare also along with economical development. The concept ESG (Environmental, Social and Governance) evolved, which promulgated that a business entity should consider development of its Economic, Social and Environmental aspects. The accountability has been fixed on business entities to develop society, which they have exploited for their economic development. Thus, through Sustainability Reporting, business entities are made accountable for welfare of all types of stakeholders, such as shareholders, customers, employees, the vicinity in which they doing business, the environment which affected due to commercial exploitation by these business entities.
The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, author assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws and take appropriate advice of consultants. The user of the information agrees that the information is not professional advice and is subject to change without notice. Author assume no responsibility for the consequences of the use of such information.